Ushering in the retail revolution

Though cheered by industry, the government’s decision to allow foreign direct investment (FDI) in multi-brand retail has raised hackles in several quarters. Political parties (both within and outside the government at the Centre) as well as several state governments have pledged to fight the move tooth and nail. As this goes to print, Mamata Banerjee-led Trinamool Congress is meeting to decide its future association with the UPA dispensation. But fears about foreign retail giants like Walmart and Tesco gobbling up small domestic retailers and monopolising the $450 billion Indian retail market are highly exaggerated. Nowhere in the world has this happened and there is no reason to believe that it will happen now in India. In that sense, the opposition to FDI in multi-brand retail is purely political with an eye on cultivating vote banks.

In fact, there are several advantages domestic small-scale retailers have that foreign retailers like Walmart simply can’t match. If one takes these into consideration, there is no reason to doubt that foreign and domestic retailers can indeed co-exist, compete and create efficient farm-to-fork supply chains. Such co-habitation would benefit both farmers and consumers, with the former realising better rates for their produce and the latter having access to a range of quality products at affordable prices.

In the interest of a vibrant retail industry there are a few myths that need to be busted.

Myth 1: FDI will squeeze out small retailers

Nothing could be further from the truth. Small retailers or neighbourhood kirana stores have a distinct advantage over large department stores in that they have a strong bond with their customers. In fact, anyone close to the retail business will tell you that forming such a relationship is half the battle. Retail giants such as Walmart spend millions of dollars trying to forge such a rapport, but their scale and size act as natural impediments. In contrast, the small mom-and-pop stores tend to know each and every customer in their neighbourhood. And it is this familiarity that allows customers to have a running tab with the local kirana shop, have things conveniently delivered home on short notices and haggle over prices. This is something that no Walmart can replicate. People might choose the large foreign retail outlets for their monthly bulk rations or to buy exotic items, but they would still go to the local kirana store for a loaf of bread or a jerrycan of drinking water.

Myth 2: Local producers will be hurt as foreign goods will flood the domestic market

This is the biggest myth of them all. Nothing prevents existing local retailers from importing foreign goods. Yet, we can’t really say that we regularly feast on Belgian potatoes or South American chilies. If foreign retailers set up shop here, 90% of their goods will be procured and sold locally. On the other hand, farmers will get access to foreign markets through these retail giants and their vast global networks. And in case we happen to experience a bad agriculture year due to the vagaries of nature, leading to shortages and rising prices, the foreign retailers can use their multi-national reach to readily import essential goods and cool prices.

Myth 3: Farmers will be forced to sell to foreign retailers at lower prices

Those who buy this argument grossly underestimate the farmers’ lobby and kisan politics in India. There are several government policies that favour farmers – subsidised electricity and minimum support prices (MSPs) being some of them. Farmers can either choose to sell their produce such as wheat, maize, paddy, jowar, bajra, etc under the government’s price support schemes or sell to a private dealer if they stand to realise better profits. Hence, farmers already have a safety net and will only sell to foreign retailers if they get a better deal. Besides, if companies such as Reliance – who have been in the retail business for sometime now – haven’t been able to corner the retail market or change basic farm production relations, I don’t see how Walmart and Tesco can.

But foreign retailers will force everyone to compete and raise their standards. By implementing best practices, investing in cold storage chains and cutting out the middlemen, foreign retailers will help reduce wastage and benefit farmers and consumers alike.

Meanwhile, I see local kirana shops evolving into multi-service convenient stores to realise new revenue streams. We can already see this happening with those mom-and-pop shops that sell mobile recharge facilities in addition to general goods. But the best examples can be found in the neighbourhood convenient stores in Taiwan. Such Taiwanese stores not only sell the freshest of produce – thanks to the Taiwanese obsession for freshness – but also offer a variety of services such as booking railway and movie tickets, renewing cable and magazine subscriptions, paying utility bills and even couriering personal goods. This Taiwanese retail model is definitely worth replicating in India.

Taken together, the entry of foreign retail giants will kickstart a much-needed retail revolution in the country that will see large department stores and variety mom-and-pop shops compete and co-exist to the benefit of all.